The New Era of Wealth Destruction

By Steven Hochberg and Peter Kendall

Excerpted from the December 2006 Elliott Wave Financial Forecast

Back in November 1999 when Bill Gates’ net worth equaled 1% of U.S. GDP, pundits latched on to a growing gap between the rich and poor. The Elliott Wave Financial Forecast said not to worry, these situations invariably take care of themselves:

In the 1930s, the wealth distribution problem was “solved” by a falling market and tax rates of better than 90% for the wealthiest Americans. In the second half of 1999, the same social forces can be seen stirring, as the “growing gulf between the haves and the have-nots” has suddenly become an issue. The seeds of a new social movement were visible in a rash of headlines like this one: “Income Inequalities Reach ‘Grotesque’ Gap, U.N. Says.” A bear market is nature’s way of redistributing wealth, but apparently, at a trend change as big as this one, people just cannot wait to get in there and lend a hand.

The timing of the last wealth disparity alarm makes a more important point. They tend to arrive at big peaks. The first order of business for the new Democratic-led Congress is raising the minimum wage. The consensus surrounding the first increase since 1997 shows that politicians are “beginning to address the growing wealth disparity.” A raise is the one item on the Democratic agenda that President Bush says he can accommodate. At this approaching peak, even the rich are starting to resent the rich. Over the course of the last two weeks, The New York Times has run a series of stories on how the “Very Rich Are Leaving the Merely Rich Behind.” “The moment has arrived for a battle” between the rich and the superrich, says another Times article. The “divide has emerged” due to “windfalls tied largely to expanding financial markets” and a newfound belief that “making money out of money” is a crass way to make a living. This headline points to the driving sentiment behind the collective angst over wealth: “Rich Now Envy the Superrich.” As The Elliott Wave Theorist pointed out in 1997, envy plays a big role in the very biggest peaks. In 1999, The Elliott Wave Theorist reproduced a Newsweek cover that identified the “Whine of ’99” as “Everyone’s Getting RICH But Me!” At the follow-up top now forming, the cry is a less comprehensive, “Some people are getting even richer than me!” But it’s the same basic emotion, one that will guide the proceedings as the social mood turns down. In the words of Emmanual Kant, envy “aims, at least in terms of one’s wishes, at destroying others’ good fortune.”

The global scope of the issue is evident in a stream of reports from around the world. “Economic Gaps Grow in Mexico,” says a recent headline in the Austin American-Statesman. While 47% of Mexicans live on less than $4 a day, “Mexico’s wealthiest residents inhabit a parallel universe of fortified mansions, posh shopping malls and separate movie theaters. They live in surreal mini-cities of gleaming, geometric towers. And most are breathing a big sigh of relief that next week conservative Felipe Calderon will be sworn in as president instead of Andres Manuel Lopez Obrador, who vowed to end the privileges of Mexico’s elite.” Obrador lost and continues to contest a close election, but radical populists have taken control in Bolivia, Venezuela and Ecuador. In Nicaragua, Daniel Ortega, the socialist leader who battled the United States from 1979 to 1990, just won re-election. Recent headlines extol the dangers of expanding “wealth gaps” in Asia, Africa, Afghanistan and the Mideast. According to a recent World Bank report, China’s poor “grew poorer at a time when the country was growing substantially wealthier.” This is nothing new, as the article points out that the gap has been growing since 1980. What’s new is the recognition and growing desire to “do something” about it. In the Persian Gulf, where the condition is almost as old as the world’s reliance on fossil fuels, the ruling elites are addressing the issue head on. Here’s the latest from the Arab News agency:

Fair Distribution of Wealth Assured
JEDDAH, 15 November 2006 — Crown Prince Sultan, deputy premier and minister of defense and aviation, yesterday emphasized the government’s plan to ensure fair distribution of wealth by establishing new development projects all over the Kingdom.

Ironically, one of the biggest projects is the encouragement of stock ownership and the establishment of exchanges throughout the Mideast. Like the Dubai Financial Market, these markets are all getting hammered. So far this year, Saudi Arabia’s main index is down 60% while Qatar is down 44% and Jordan is off 36%. Government efforts to spread wealth are always counterproductive. The harder it tries, the more it ruins. Locking the less wealthy into stocks in a bear market will be the last nail in their coffin.

Do Your News Sources See the Connections?

If not, you’re missing out on global opportunities. Because, stories about politics and the economy and the markets often DO connect…

…But only if you see the connections. You’ve just seen exactly how we saw the “wage gap” connect to stock market peaks. There’s a lot more we see each week, in countries and regions around the world — and we show members all of it in our free Club EWI program.

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